Trust, but…..
There are two ways you can choose to minimize the risk of fraud in your organization:
OR
It’s the classic rock and a hard place. Or so it would seem, but there are ways to implement new controls and anti-fraud measures that keep employees from thinking management sees them as incompetent, untrustworthy or worse.
“Trust, but verify” is generally attributed to President Ronald Reagan, who often used it to summarize his philosophy regarding the U.S. approach to arms agreements with the Soviet Union. Ironically, it originated as a Russian proverb - doveryai, no proveryai. In any case, it is just as applicable to fraud risk management in your company today as it was to diplomacy during the Cold War, and can be implemented diplomatically and effectively.
Feeling trusted is a sensitive matter in small companies with long-time, highly trusted employees. Your organization has worked hard to gain the trust of employees; putting in place additional monitoring and other verification controls without adequate communication (and by “adequate”, we mean “a lot”) carries a great risk, possibly leaving employees feeling untrusted or singled-out. Removing some authorities and responsibilities, even in the name of segregation of duties, is often a trigger for discontent and grumbling among employees who feel they are no longer trusted.
Even more than a dip in morale, a perceived lack of trust can have implications for workforce productivity: according to a study published in the Harvard Business Review, “Under conditions of high trust, problem solving tends to be creative and productive. Under condition of low trust, problem-solving tends to be degenerative and ineffective”. Clearly, implementing appropriate controls and communicating the positive benefits of these changes for individuals and the company, is critical to success, not to mention avoiding all the resource required to repair out-of-joint noses.
If you find yourself facing the challenge of having to make changes to your company’s controls or putting in anti-fraud measures AND wanting to keep the organizational ship sailing on relatively calm waters, you may want to look at the nature of the change of each employee affected and structure your communication accordingly. Each person probably presents you with one of three situations:
Analysis: Lucky you! Explain the need for proper controls based on sound accounting, financial reporting and fraud prevention principles and assign additional responsibilities in another area that doesn’t run afoul of those principles. Let them know that this also helps protect them by allowing them to easily show their innocence (reword) if fraud were ever suspected, whereas the situation now might not do that.
Analysis: Not so bad. This is an opportunity to communicate to this person how much you appreciate them, and that to verify doesn’t mean not to trust (although you might not want to compare them to the Soviet Union). After you have addressed the emotional need, explain the financial reporting and fraud prevention stuff and assign additional responsibilities in another area that they find interesting. Consider communicating the change in a clear, positive, and supportive manner to keep the rumor mill from gearing up.
Analysis: Nice job. You just saved yourself significant costs in terms of direct financial loss, legal, accounting and other professional fees, interruption of your normal business operations and damage to your reputation, just to name a few items. The down side? You may never know it.
For everyone’s sake, have the discipline to take an action that is good for your business but provides little immediate gratification (you’ll may never know what you prevented). Understand how and with whom to communicate so the new process implementation goes smoothly for everyone involved.
Fraudulent activity has a very high cost - Contact us for assistance in identifying steps you can take to prevent it, monitor information and trends that reveal it, and, when necessary…… investigate it and help you recover from loss or achieve compliance. Remember: Trust your people, but verify the process.
For more information or to contact someone in our Forensic and Valuation Services department, email Bill Brown bbrown@bdmp.com or Cheryl Bascomb cbascomb@bdmp.com .